Better mileage than a Prius? Not so fast

Volkswagen Golf TDI Hybrid

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NEW YORK (CNNMoney.com) -- It was bound to happen - the Toyota Prius could soon lose its crown as the most fuel-efficient car on the market. But you might want to hold off before you cancel your order.

Volkswagen unveiled a hatchback in Europe this week that gets even better mileage than the Prius. The VW Golf TDI Hybrid gets 69 miles per gallon in the European fuel economy test cycle, according to Volkswagen. Toyota claims 54 mpg for the Prius in the same test.

It's a concept vehicle for now, but the diesel-powered hybrid indicates something that's in the "near term future" for European customers, a VW spokesman said.

Customers in the U.S. would have to wait a little longer, but a car like this could eventually be sold here, said Keith Price, a spokesman for Volkswagen of America.

It's easy to understand why the Golf gets 26% better mileage than a Prius, which burns gasoline. The Golf TDI hybrid has a diesel engine, which is more efficient.

A non-hybrid 2006 Volkswagen Jetta diesel sedan gets 33 mpg in combined city and highway driving, according to current EPA estimates. A 2007 Toyota Camry Hybrid, a similarly-sized car, gets just one mile per gallon more. And the Jetta diesel gets much better highway fuel economy - 38 mpg - than the Camry Hybrid's 34 mpg.

You may wonder why no one thought of the diesel/hybrid combination before.

"From a consumer standpoint, it comes down to 'What kind of compromise do I need to live with to enjoy all this wonderfulness?'" said VW's Price. And the biggest challenge, he conceded, is cost.

Diesel engines burn fuel using high pressure and heat instead of a spark. The engines have to be more rugged to withstand the strain, so they're more expensive to build.

Chrysler has a small test-fleet of plug-in diesel hybrid Dodge Sprinter vans in commercial use today, but the technology is too pricey to put into passenger vehicles, said Chrysler spokesman Nick Cappa.

"There has to be a customer value there," he said. "It has to pay for itself."

For the U.S. passenger car market, there's an additional cost hurdle: It's harder for diesel engines to meet strict clean-air requirements here. They produce lots of noxious fumes and particles that require expensive exhaust treatment systems.

But with new ultra-clean diesel fuel now readily available at American gas stations and new exhaust-cleaning technology in cars, various automakers hope to introduce a new generation of clean-diesel cars here over the next couple of years.

But like hybrids, these new diesels will be more expensive than similar gas-powered cars. The mark-up may not be quite as much, though.

Volkswagen estimates that the 2009 Jetta diesel will cost about $2,000 more than the gas-powered version. Official pricing hasn't been announced yet, though. (The 2006 model year was the last time VW sold diesel cars in the U.S.)

Manufacturers almost always add unrelated equipment to hybrids, so it's difficult to estimate a cost, but hybrids usually cost at least $2,500 more than non-hybrid versions of the same vehicle.

Add those numbers altogether, and a hybrid diesel would be dauntingly expensive, even if federal tax incentives were factored in.

Buyers could also lose another big cost benefit: excellent resale value. Diesel engines last longer than gas engines so diesel cars are worth more after years of driving.

Hybrids, on other hand, generally do worse than other cars in resale value, according to Kelley Blue Book. Combine a hybrid and a diesel, and its resale value is anybody's guess, said Robyn Eckard, a Kelley Blue Book spokeswoman.

For now, the Golf TDI Hybrid comes closest to making sense in Europe. Diesel fuel generally costs less than gas there, adding to the financial benefit of greater fuel efficiency. And European regulations don't require all the pricey emission-cleaning technology needed to sell diesels in the U.S. That's why diesels make up about half of new car sales in Europe.

Technology costs will come down over time, though, points out VW's Price. "The costs of all technologies come down with acceptance," he said.

If a diesel hybrid is a hit in Europe, and VW were to ramp up production, that could bring down the per-unit costs, he said. And that could open the door to selling such a car in the United States.

By that time, U.S. consumers should be familiar with VW's - and other companies' - new diesels, said Price.

And if any company could make it work in the United States, it would be VW, said Charlie Vogelheim, vice president of J.D. Power and Associates.

Even though they're not currently sold here, VW's diesels still have a strong cult following, he said: "It's like 'I don't care what anyone else thinks, I love my diesel car."